Do you qualify for export tax credit?

EL PASO, Texas – Farmers who sold cotton into the export market from the 2000 through 2003 crops may be eligible for an export tax credit.

“The credit was initially written for companies,” says Jack Langenegger, vice president for member relations for the Southwest Irrigated Cotton Growers (SWIG), a cooperative operating out of El Paso and serving more than 50,000 acres of cotton in West Texas, New Mexico and Arizona.

“But recently accountants in California read the law and determined that cotton farmers (as well as other crop producers) qualify for the credit. Our initial interpretation was that only a small percentage of the dividends would qualify, and we did not worry about it because it’s an ornery process to calculate for the tax credits.”

Langenegger says pool cotton is considered an extension of its individual farmers and as such qualifies for the credit. Cotton sold to a merchant and then exported may not be eligible for a tax credit to the farmer, however.

He said the credit could be significant for some farmers, but warns that the process of determining eligibility may be difficult.

“We come up with a percentage of the pool cotton that went to export,” says Joannie Smith, who classifies herself as a number cruncher with SWIG.

Individual farmers take that percentage and figure out their eligible expenses.

“That’s where it gets tricky,” says Langenegger. “Most of the farmers in this area grow crops other than cotton, so they have to separate the cotton expenses from everything else and then take the export percentage.

“It’s not all that hard to come up with the percentage of cotton exported out of the pool, but individual farm calculations may be more difficult.”

Smith says farmers who do not sell through a pool may have more difficulty substantiating export sales. “They will need a good accountant and very thorough records,” she says.

Currently, cotton from the 2000, 2001, and 2002 crops qualifies. After April 15 the 2000 crop will not be eligible.

“Farmers can’t file an amended return three years after the initial due date,’ Langenegger says.

He says the credit may mean more to farmers in the West than to the East. “The further east you go, the less cotton ends up in the export market,” he says. “Virtually 100 percent of California and Arizona cotton goes to export. In El Paso, we’re in sort of a middle ground. We export a lot but we sell a lot to manufacturers as well.”

Langenegger says the interpretation of the law remains in question. “But, for now, we’re working as if its legal, and we don’t expect Congress to rescind it.”

European traders who have threatened a tax in imports are challenging the credit. “Some countries claim the tax credit is a trade distorting practice,” Langenegger said.